AmerisourceBergen deal with Walgreen reaps rewards, and costs

Drug wholesaler AmerisourceBergen's ($ABC) saw its pharmaceutical distribution sales jump nearly 40% as it continues to expand work for pharmacy giant Walgreens ($WAG), but it still came up with a nearly $13 million loss in its last quarter. It pegged the shortfall to costs tied to paying off some debt earlier than initially expected.

The wholesaler and service provider last year struck a 10-year deal with Walgreens and its partner Alliance Boots, as it looked for a way to expand internationally. The drug distributor started handling branded drugs for the two chains last year and began picking up their generic drug distribution this year. Walgreens and Alliance Boots also worked the deal so they will take a minority stake in AmerisourceBergen, starting with 7%. Walgreens paid $6.7 billion in 2012 for nearly half of Alliance Boots.

Walgreens has more than 8,000 drugstores in the U.S. and Puerto Rico and Alliance Boots has stores in more than 25 countries. The business from the deal helped drive up AmerisourceBergen's pharma distribution revenues in its third quarter to $29.8 billion, most of its total $30.35 revenue. But it also was the reason for its higher costs of sales, which were up nearly 39% to $29.7 billion. Operating expenses grew 35.5% to $581 million.

The Valley Forge, PA-based company also expanded this year in South America by investing about $110 million into Brazilian distributor Profarma Distribuidora de Produtos Farmacêuticos (Profarma) for a 20% stake. The companies launched a joint venture there.

Wholesalers are looking at international expansion not only as a way to diversify sales, but also as a way to develop deeper relationships with drugmakers and get better discounts. AmerisourceBergen competitor McKesson ($MCK) has chased it into Europe, finalizing a protracted deal last year to take control of German-based wholesaler Celesio for $5.4 billion.

- here's the earnings release

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